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Would The U.S. Sanction China For Buying Iranian Oil?

A U.S. State Department official has suggested that Washington could impose sanctions on China if it continues to buy Iranian oil after November 4 when sanctions specifically targeting Iranian oil sales abroad will kick in, the Wall Street Journal reports.

The WSJ quotes newly appointed special representative and head of an Iran Action Group at the State Department as saying that, “The United States certainly hopes for full compliance by all nations in terms of not risking the threat of U.S. secondary sanctions if they continue with those transactions.”

In addition, Brian Hook declined to rule out the possibility that the United States could count China among those targeted by secondary sanctions for its repeatedly stated intention to continue buying Iranian crude despite U.S. sanctions.

Earlier this month the United States managed to secure a promise from China that it will not expand its Iranian oil imports, but given the tariff escalation between the two, it’s possible that China could revoke this promise. This is more than likely unless, of course, the next talks, which are planned for later this month, put an end to what everybody is already calling a trade war. Related: The One Oil Industry That Isn’t Under Threat

An Iran Action Group was set up this week to “direct and coordinate all activity relating to Iran,” as per WSJ’s report. The purpose of the administration is to apply maximum pressure on Tehran in hopes of spurring a change of government. Skeptics, however, have warned that the regime change plan may not work out as well this time as it did in 1953.

Crude oil is the number-one target of the sanctions, and Washington officials have been very busy in the last few months trying to secure commitments from its allies that they will stop importing Iranian oil. The task has proved challenging, however, because of China. Other Asian importers of Iranian oil are hoping to secure waivers from the sanctions because they would be hard put to quickly find an alternative to the attractively priced Iranian crude.

It is becoming farcical by the minute. China is going ahead with buying Iranian crude thus ignoring US sanctions on Iran and daring the United States to impose sanctions on it. China can singlehandedly neutralize US sanctions by deciding to buy the entire Iranian oil exports amounting to 2.5 million barrels of oil a day (mbd) as a retaliation against escalating US trade war against it and paying for them in petrodollar.

Were the US to impose sanctions on China, China could easily switch to other markets around the globe. China’s economy is far more integrated in the global trade system than the US economy and also bigger by 24%. However, the US could pay a heavy price if it tries to replace Chinese exports with imports from other countries. No other country in the world could produce goods particularly high tech goods cheaper than China. Replacing Chinese exports will lead to higher prices for US customers and also higher inflation in the United States. This will definitely offset any benefits from the tax cuts, worsen the budget deficit and also increase US outstanding debts by 2.35%.

The United States doesn’t have extraterritorial jurisdiction over other countries of the world to expect full compliance by them of the US sanctions on Iran. The overwhelming majority of the nations of the world will simply ignore the sanctions.

China which is being subjected to intrusive US tariffs and Russia which has been battling US sanctions since 2014 will have be happy to ensure the failure of US sanctions against Iran as a sort of retaliation against US tariffs and sanctions against them. The US would be making a huge mistake were it to underestimate the power of the Russian-Chinese strategic partnership which has led to the successful launching of China’s crude oil future contract (the petro-yuan).

China could easily put US in checkmate by sanctioning US LNG and oil, an industry that is the great white hope for the Trump Administration.

Corvettekid on August 21 2018 said:

China's economy is 24% bigger than the United States GDP ? Who compiled the statistics, Venezuela's Economics Minister ?

China and Russia are 2nd-tier financial economies. The U.S. Treasury and Mortgage-backed securities markets trade more in 1 day than their bond markets trade in a month. Go tell SWF's and insitutional investors to invest in those roach motels with their cash and liquid assets.

As a former Treasurer and investor, I would have been fired had I invested corporate cash with no-risk mandates in Russie or China.

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